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Local Authority Regains Control of Ontario Int'l

Nov. 1, 2016, marked a new era for Ontario International (ONT), as ownership, management and operation of the Southern California airport returned to local control. The Ontario International Airport Authority (OIAA), formed through a joint powers agreement between the city of Ontario and San Bernardino County, assumed control from Los Angeles World Airports (LAWA) after a successful campaign to "Set Ontario Free."

Kelly Fredericks, OIAA's chief executive officer since January 2016, says an authority was the best solution for returning the airport to local control because it is an initiative that needed regional support. "From my perspective, the best governing structure for an airport is an authority," says Fredericks.

Before the recent change, the cities of Ontario and Los Angeles had a long, intertwined history regarding the airport. In 1967, the two municipalities entered a joint powers agreement for the operation, management and control of ONT. The city of Ontario was interested in developing and growing its airport but lacked the necessary financial resources to do so, explains Fredericks.

facts&figuresProject: Transfer of Ownership, Management & OperationsLocation: Ontario (CA) Int'l Airport Current Owner/Operator: Ontario Int'l Airport AuthorityPrevious Owner/Operator: Los Angeles
World AirportsNew Airport Commission: 4 members appointed by Ontario City Council (2 city council members & 2 area business leaders, 1 San Bernadino County supervisorOf Note: Advocates of local airport control mounted campaign to "Set Ontario Free" & elicited support from community & business leaders

Located in the Inland Empire, ONT was seen as an important part of the long-term solution for air travel in Southern California because of its location-just 35 miles east of downtown Los Angeles and about 56 miles from Los Angeles International (LAX).

Under the 1967 agreement, the Los Angeles Department of Airports developed and improved ONT, and paid the city of Ontario $5 million (the value of the portion of ONT property previously acquired by the city of Ontario), subject to certain credits for making capital improvements. The Department also paid Ontario $2 million for outstanding airport revenue bonds issued by the city of Ontario.

In June 1985, the city of Los Angeles officially acquired ONT, with LAWA completely satisfying the primary monetary obligations in the joint powers agreement and the city of Ontario transferring all of the rights, titles and interest for the airport to the city of Los Angeles. That agreement stayed in place until the recent transfer to OIAA in November 2016.

Between 1967 and last fall, LAWA expanded ONT's 485 acres of land to more than 1,700 acres and invested more than $500 million in improvements.

Local Movement
The city of Ontario and San Bernardino County began investigating the possibility of bringing the airport back under local control about eight years ago. As traffic at ONT dropped, local officials felt the airport would fare better under local control. "There was kind of a perfect storm," Fredericks says of the airline consolidation and economic downturn occurring at the time. "You had the economy and the industry change. But there was a definite feeling that the facility was underserved, it was underutilized, and, in many respects, it may have fallen to a little bit of neglect."

At its peak, ONT served 7.2 million passengers per year; but traffic dipped below 4 million in 2013. "This is not a criticism of the LAWA folks at all," Fredericks emphasizes. "I get that only one airport can be a No. 1 priority, and clearly it wasn't Ontario, it was LAX."

The "Set Ontario Free" movement subsequently formed, and advocates worked to rally support for returning ONT to local control. Representatives were "relentless" in meeting with officials and business leaders from Ontario and surrounding municipalities, recalls Fredericks. "It started as a grassroots initiative that got legs and was continually garnering more and more supporters," he recalls.

In August 2012, the city of Ontario and San Bernardino County created OIAA through a joint powers agreement. The authority's five-person commission includes four commissioners appointed by the Ontario City Council-two city council members and two businesspeople from the airport's market area (San Bernardino County, Riverside County, Orange County and part of Los Angeles County). The fifth commissioner is a San Bernadino County supervisor.

Fredericks considers it unique that OIAA owns and operates all of ONT's assets, yet it operates as a totally autonomous body: "We're not a city department; we're not city property. We're not a county department; we're not county property."

Per its charter, OIAA was established to:
• manage ONT as a separate enterprise from the city government;
• develop a specialized workforce with airport knowledge, skills and abilities;
• manage the airport's procurement process efficiently, using private sector methods wherever appropriate;
• plan for the best use of all airport property and facilities in concert with the surrounding infrastructure and land uses;
• respond nimbly to market opportunities; and
• separate airport finances from city and county finances.

The authority's mission is to operate and grow ONT as one of the most competitive, efficient, innovative and customer-friendly passenger, cargo and business airports in the United States as a key economic asset serving the Inland Empire and entire Southern California region.

Following the formation of OIAA, advocates became "much more aggressive" in using the Set Ontario Free marketing campaign to garner support for seizing local control, explains Fredericks.

With LAWA reluctant to relinquish control of the airport, OIAA and LAWA "went back and forth" for a number of years. "It was quite adversarial and was leaning toward litigation," he recalls.

Much of the delay accrued while the two sides worked to agree on the value of the facility. "I think from this side of the equation, some felt the airport was neglected," Fredericks explains. "And, of course, if you're the LAWA team and you hear that, it sounds like you weren't taking care of the place or promoting it. There was definitely some acrimony."

Eric Garcetti, mayor of Los Angeles, summarized his position via official correspondence in late July 2015: "Since becoming mayor of Los Angeles, I have consistently indicated by willingness to work with you and other stakeholders of the Inland Empire to facilitate transfer of ONT to Ontario or OIAA, but have required that such transfer reasonably compensate Los Angeles for investments in ONT, including, but not limited to, the completion of two new passenger terminals in 1998 and subsequent property acquisitions intended to facilitate future development of ONT. I have also required that we have a responsible framework for protecting LAWA employees serving at ONT throughout the transition."

He also addressed the interrelated implications of a transfer: "The terms of any transaction should facilitate vibrant, successful operation of ONT in the future, without undue burden, as all airports in Southern California, including Los Angeles International Airport, must function successfully and collectively to meet future transportation demand, develop responsibly to serve the public, and contribute to economic development throughout the region."

Fredericks credits both organizations for exhibiting a lot of "persistence, commitment and endurance" in determining the final agreement. "It came very close to court-literally a couple of weeks before the court proceedings were to begin, they were able to reach an agreement," he recalls.

On Aug. 6, 2015, the cities of Los Angeles and Ontario officially settled litigation over the management of ONT. The settlement included terms that allowed the transfer of ownership to OIAA, subject to approvals by the L.A. Board of Commissioners, L.A. City Council, OIAA and FAA.

The settlement agreement detailed that on the transfer date-Nov. 1, 2016-LAWA would transfer assets of ONT to OIAA, including physical property, leases, contracts, agreements and cash remaining in ONT accounts. The agreement also required that various payments be made to LAWA prior to and following the transfer date: $30 million from Ontario; $40 million from unrestricted cash accounts of ONT; $120 million from ONT's passenger facility charge account; and $55.5 million via the discharge of outstanding debt obligations issued by LAWA for ONT.

The transfer became official after final approval and issuance of an Airport Operating Certificate by the FAA.

Are We There Yet?
Even after the two organizations agreed that OIAA would take ownership and control of the airport, numerous details remained regarding the final transfer agreement.

Special legislation had to be created to allow passenger facility charges to be used for a portion of the $250 million transfer by OIAA. "Our congressional delegation did an amazing job, and we were able to get it in under the wire as part of the FAA reauthorization," Fredericks explains.

And then there was the paperwork. Lots of paperwork. "It was an enormous administrative task to get everything done, and it couldn't have been done without the partnership and collaboration of LAWA," he comments.

"It wasn't a case of just changing the names on the doors or the signs," adds Fredericks. "We're a medium hub airport and growing. From day one, we had to operate this place and keep it going, and there were no policies and procedures, no IT system-we've completely redone everything."

Moving into airport offices shortly before the transfer and working side-by-side with LAWA staff allowed the OIAA team to "hit the ground running," he notes. "I think the more you can collaborate and tap into the institutional knowledge that is here is only going to benefit you."

The OIAA board adopted all policies and procedures from LAWA so that, operationally, what happened on Oct. 31 could continue on Nov. 1. However, now the authority is working through nearly every policy and procedure to establish them under the OIAA. "Even something like Lost and Found has to be completely redesigned and a new process put in place so that it's done within the authority," comments Dan Adamus, chief marketing officer for OIAA.

As part of the settlement between LAWA and OIAA, a staff augmentation agreement allowed all employees working for LAWA at ONT on Oct. 31 to become contract employees to ONT under LAWA on Nov. 1.

When OIAA took over, ONT had 205 employees, but that is already dropping as OIAA "right-sizes" and outsources many of the activities airport authorities often provide. From landscaping to maintenance to janitorial services, OIAA is seeing "significant cost reductions" by contracting with its airline consortia, reports Fredericks.

"No one loses jobs over this," he specifies. Although the new authority will employ far fewer staff members at ONT, every airport employee is guaranteed a job within the LAWA system or the city of Los Angeles' civil service system. Under the transfer agreement, OIAA has up to 21 months to finalize the transition of LAWA contract employees. In addition, there is a three-year grace period, during which employees still have guaranteed employment with LAWA or Los Angeles if they find that OIAA is not a good fit.

Fredericks notes that managing the various staffing issues associated with the transition and ensuring they are handled in complete accord and compliance with the settlement agreement are top priorities for him and his team. A formal process is in place if management decides that a position will not be part of the eventual organizational chart.

Planning for Growth
Nearly four years before it took control of the airport, OIAA adopted a strategic business plan for ONT- "our blueprint for the future," explains Fredericks. The plan's four key tenants are:
• reduce airport costs;
• develop airport-related business;
• expand air service; and
• infuse customer service throughout all activities, services and facilities.

Fredericks reports that he and the OIAA team are hard at work addressing all aspects of the business plan, including the most aggressive air service development program he has ever been part of. Currently, ONT is served by seven airlines, with 63 daily departures to 15 nonstop destinations in the United States and Canada.

Just as passenger decline didn't occur overnight, the authority knows it will take work and time to rebuild volume, notes Fredericks. That said, commercial passenger traffic in February 2017 grew 5.6% compared with February 2016. And air cargo increased 9.1% during the same period.

In addition to domestic and international air service development, Fredericks sees tremendous opportunity to grow cargo and corporate traffic. UPS is already expanding at the airport. Once the current project is complete, its facilities will span nearly 900,000 square feet, and ONT will be the cargo company's second largest facility in North America.

FedEx and Amazon also maintain operations at ONT.

With roughly 1,750 total acres, 700 of which are developable, ONT has ample land resources, remarks Fredericks. "[It's] a footprint you couldn't replicate somewhere else right now in the second most lucrative air service market in the country," he notes.

ONT is also unencumbered by some of the issues that other nearby airports face: passenger caps at Orange County's John Wayne Airport, slot and noise issues at Long Beach Airport, and convenience and accessibility challenges at LAX. "We are truly the only unconstrained airport in Southern California," says Fredericks. "I think we're in the right place at the right time."

He also envisions ONT becoming a "relief valve" for the region as passenger demand increases in Southern California.

ONT's two terminals were designed to handle more than 10 million annual passengers. In 2016, the airport served 4.3 million passengers. "So this isn't a 'build it and they will come,' [situation]," he remarks. "We can accommodate growth now. We've got the infrastructure to accommodate growth now and the property to accommodate demand in the future."

"We've got good bones," he adds, referring to the airport's infrastructure. With two runways, 12,200 feet and 10,200 feet, ONT can accommodate any aircraft. "We're right in the middle of the second largest market-a market that's busting at the seams, that needs new capacity-and we think we can provide that capacity."

But Fredericks knows that those factors alone do not guarantee success. As such, the authority has "strategic plans to take advantage of the amazing regional support" for the airport, he notes.

Given the development and revenue opportunities OIAA officials foresee, Fredericks predicts that costs for airlines to operate at ONT could drop dramatically. "We'd love to be a zero-cost airport," he comments.

As policies and procedures are being developed for the airport, Fredericks notes that OIAA is not necessarily tied to the status quo. "We can learn from other airports, international airports, and some of our best practices and things we're implementing might not even have anything to do with the aviation industry. We look at other businesses," he says.

Also on the agenda for OIAA is completing a master plan-something that has never been done at ONT. It also plans to execute an aggressive and targeted marketing campaign to heighten awareness of the airport.

"We're focused on this airport and tapping into the support with getting the local control to take it to the next step," Fredericks says. "Now, we've got one airport and one airport only; and that's our priority. We need to broaden our brand well beyond Southern California, and we think we're well on our way to doing that."

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